DP293 Costs of Inflation

Author(s): John Driffill, Grayham Ernest Mizon, Alistair Mitchell Ulph
Publication Date: April 1989
Keyword(s): Fluctuations, Inflation, Welfare Costs
JEL(s): 134, 227
Programme Areas: International Macroeconomics
Link to this Page: cepr.org/active/publications/discussion_papers/dp.php?dpno=293

We review theoretical and empirical analyses of the costs of inflation. Part 2 of the paper examines microeconomic models in which inflation is perfectly anticipated, and viewed as the only distortion in the economy or as one of many distortionary taxes, which may or may not be chosen optimally. Part 3 turns to stochastic models with a more macroeconomic orientation, in which inflation is imperfectly perceived, or where real costs of price adjustment cause agents not to adjust fully in the presence of inflation. Part 4 discusses empirical work, which largely focuses on the relationship between the level of inflation, its variability, its unpredictability, and variation in relative prices.